Dharmesh Shah on 2 sectors to bet on in a volatile market

"Right now, it's hard to say what to buy, but it’s best to wait for a reversal. Nifty has strong support at 23,800, with resistance around 24,600 to 24,700. Going short now is not advisable—any positive news could trigger a pullback to 24,500 or 24,600," says Dharmesh Shah, ICICI Direct.

Very interesting data point Soumeet mentioned—the biggest monthly decline we're facing, apart from the COVID period, since 2016. In 17 instances, we've seen a drop of over 1%. What does this tell you about volatility, and do you think this will be the market's trend in the coming months?
Dharmesh Shah: Yes, the market has been shaky in the last few trading sessions. I was listening to Soumeet, and he mentioned a decline of around 7% in October, which is true. Historically, October hasn't been kind to the markets, but if you look at the data, it shows a pattern. In the last quarter—November and December—out of 17 times, 13 times these months have proven to be seasonally positive. We believe the market could perform better in November compared to October. I expect some technical pullback. The market appears highly oversold on both weekly and daily charts. We believe the Nifty has strong support around 23,800 to 23,600, with some signs of capitulation in the current session. The midcap index is down by 3%, which suggests that people are selling good stocks at current prices, driven more by sentiment than fundamentals. We think the market could move 1% or 2% up or down from current levels, followed by a gradual recovery in the coming weeks. Right now, it's hard to say what to buy, but it’s best to wait for a reversal. Nifty has strong support at 23,800, with resistance around 24,600 to 24,700. Going short now is not advisable—any positive news could trigger a pullback to 24,500 or 24,600.

With just four days remaining in this expiry, do you expect a turnaround before the end of this series or at least by November?
Dharmesh Shah: Yes, we believe so. The market seems heavily oversold. A recovery may begin by Tuesday or mid-Wednesday. Historically, when the market experiences such a fall, one or two weeks of sideways movement can follow, but we still expect a recovery. The advance-decline ratio, which tracks advances and declines in the CNX 500, is an indicator of market overselling. When the decline side hits around 480, it often signals a recovery the following week. Based on today's data, with many stocks declining, I expect some shaky movements over the next one or two sessions, but ultimately, a recovery in the coming weeks.

What would you recommend as a buy in this market?
Dharmesh Shah: Looking at the current trend, IT as a sector has been a clear outperformer. Many companies, including those in both midcaps and large caps, have posted good numbers. Stocks like Infosys, TCS, and Persistent are looking positive. Apart from IT, we also like the pharma sector. Companies like Piramal Pharma and Syngene look promising, and their outlook for future quarters is positive. In banking, the Bank Nifty has strong support around 49,600, which aligns with the 200-day moving average. Even if we see a 1% or 2% dip below this level, banking remains solid. HDFC Bank and Axis Bank are stocks to watch in this space.

Among sector indices, Nifty Auto has fallen the most this month, down around 12%. Do you expect this index to stay sideways for the rest of the year, or is a reversal possible?
Dharmesh Shah: Nifty Auto might stay sideways, with a possible technical pullback. The sector has outperformed over the last two years, but we expect new sectors to take the lead in the next phase of the bull run. It's still too early to predict which ones, but for now, I would avoid auto stocks at current prices, except for M&M, which has been a relative outperformer in the auto space.